Pricing Your Tech: Your Technology Product’s Functionality Is More Important Than Its Cost

Making your technology valuable to your market is the most important part of growing your business—and pricing your products correctly is an essential part of that effort. If you want to make an impact in your target markets, the first step is to understand how your company’s tech differs from your competition. Most importantly, you should then build solutions that create real value for your customers.

When your technology can solve a problem, the primary element that determines its value is the magnitude of that problem. The ability to fix issues that have never been solved—or doing it better than your competition can—will help you achieve the best pricing.

I’ve outlined some important considerations to help you maximize functionality and pricing control below.

Understanding Your Chosen Market

When starting a technology company, your company will typically fall into one of two categories. You will ideally either be 1) an improver, or 2) a first mover. If you go to market as neither, you risk becoming white noise—especially in oversaturated and highly competitive fields.

Improvers

If your technology company is an improver, this means you are entering an existing market with a solution that improves either the price, quality, or functionality of current “state of the art” tech. In this case, the market value and price of your product is generally established and known.

There are many benefits to improving technologies that can work in your company’s favor. Namely, you can challenge competitors by adopting an existing technology, then offer a version that is cheaper or better than ones that exist in the market. Prices and expectations are already established by competitors in these scenarios, making your path to revenue more clear and precise than the one traveled by first movers.

First Movers

If your tech company is a first mover, you are creating a completely new technology that establishes an otherwise non-existent market. This allows you to operate on a “green field”, where you can set expectations for both pricing and performance. You can also own that market for the duration of time when you are the only provider of your new product. Steps can be taken to increase that length of time, essentially creating a temporary, yet legal, monopoly.

Why Companies Should Focus On Functionality Over Cost

Regardless of whether you’re entering or establishing a new market, determining price is enormously important—but can be challenging.

Improvers that offer less expensive tech to undercut competition can certainly earn great revenue and build a thriving business from that model. However, I strongly suggest focusing on your technology’s functionality, even if offering less expensive solutions are your company’s chosen method of revenue generation. If you do, you can protect your company’s tech in a variety of ways.

First, adding capabilities means that you can file for patents for the added features that you’ve created. This increases the barrier to entry for your competition—slowing them down as they try to catch up to you. It also proves that you hold a legal advantage over other providers and have developed something unique. This is an effective sales tool that should not be overestimated.

Second, providing added functionality means that you will be more in control of your prices. When you can solve a problem, the value of your product is now equivalent to the company’s savings as a result of fixing that problem.

Third, it protects you from price wars. By creating concrete and tangible benefits to using your tech, you take the focus off its cost. However, if you only offer the same technology as others but at a lower price, all that a competitor needs to negatively impact your business proposition is to find a way to match you.

How to Improve Your Technology’s Functionality

To do this, focus on what your technology can do, rather than limiting yourself to thinking about what you should charge for your product. Consider how your tech affects your customer’s ROI or solves industry problems. Will it automate an existing business process? Will it make things easier for your client? Will their supply chain be more effective? Can it help customers make more precise projections? It needs to be simple to understand, and easy to articulate.

Make sure that you can justify why your customer needs your technology. This is where you need to use a little business savvy to put together a strong, concise elevator pitch. Find your customers’ pain points and address them with improved functionality over your competition. Then, determine how those improvements affect their ROI. If your technology can dramatically increase their ROI or reduce costs, then you can justify prices that are potentially far higher than the current rate for a comparable solution.

Increased Functionality In Action

A great way to illustrate these benefits in action is with an early example from I.D. Systems. Soon after I founded IDSY, we decided to develop a smart RFID tag and act as improvers to the existing RFID market. We shifted our attention away from the price of the product itself in favor of focusing on how the functionality of our units could dramatically increase clients’ ROI. Instead of developing a tag that was less expensive, we put processing power and memory in the tags to allow them to do more.

We began by developing a smart tag to track letters for the US Postal Service. At the time, the Postal Service wanted to use a smart tag because “dumb” tags did not work in their environment. Our tags worked better than competitors’, so we were able to price them at $250 each—a number previously unheard of in the industry. As we looked to further add functionality to our tags, we saw an opportunity to track and monitor forklifts inside of the Postal facilities. As I delved deeper into the forklift logistics industry, I realized that there was real demand for our solution beyond simply tracking their location. There were crucial opportunities to fix significant safety and productivity issues surrounding forklift operation, so we targeted them.

There could be hundreds of forklifts in each warehouse, but it would be impossible for operators to carry hundreds of keys to drive them when they need one. As a result, keys were routinely left in the ignition for anyone to start operating—whether that individual had the training and clearance to do so, or not. We added a card reader to our RFID tags to provide a method for intelligently controlling what individual was operating which forklift and at what time, which also increased employee safety and prevented injuries or deaths caused by untrained operators.

Another major function of our technology was the ability to drastically increase productivity. We found that among those surveyed, operators who were being paid for eight hours of operation were only on forklifts for four hours. Out of those four hours, only two were spent moving the forklifts, and only one hour on average was spent moving product. With numbers like that, we knew that even a 1% increase in efficiency would produce a one-year ROI for our customer. Our system installation would therefore more than pay for itself.

These insights meant that we were able to price our technology at $2,000.00 (!) per RFID tag on each forklift. This cost was unheard of for RFID tags in ‘95, when our competitors’ solutions were priced at $20-40 per unit.

The tag price alone was much less important than the business automation processes and problems that we were trying to solve, because solving those problems made our technology much more valuable than it otherwise would have been. Additional functionality allowed us to focus on breaking new ground, which eventually led to a much higher value for the units we were building. Because we shifted the focus from price to functionality, it was clear that our solution was well worth the cost due to the increased ROI after the installation. We started as improvers by making “smart tags” and became first movers by adapting them to the needs of forklift management.

Ultimately, you can create higher demand for your product by emphasizing what the tech does over what the tech costs. If you focus on processes and functions that benefit your customer’s ROI, you will generate consistent revenue. It will help you justify significant price increases if needed, make a clear argument for why clients should choose your tech over your competitors’, allow you to quickly scale your company, and help you dominate your chosen market.

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